'Kazanorgsintez managed to undergo the period without loss': experts assess situation on polymer market and chemical giant's indicators

Maintaining the momentum

The chemical giant has submitted reports for the last 9 months. The company's revenue amounted to 46,8 billion rubles, net profit — 6,5 billion rubles. While accounts payable have decreased by 7,4% compared to the previous year, non-current assets have increased. They reached 52,4 billion rubles. Their growth may be related to the continued production modernisation of Kazanorgsintez. Despite the difficult economic situation, the company has not relinquished its plans: a new reservoir park for storing isopentane and hexene-1 will be built at the Organic Products and Industrial Gases Plant.

“It is planned to build four tanks for storing hexene-1 with a capacity of 400 cubic metres. This is about 800 tonnes of product storage. And three containers for isopentane of 200 cubic metres, for 200 tonnes," said Vyacheslav Yunin, the deputy head of the shop 41,50,762 at the Organic Products and Industrial Gases Plant. “We are also going to build a new pumping station: two pumps for each product. The reservoir park will be in compliance with all standards. There will be installed a drip pan, sewerage, air emission protection system. The construction and storage of facilities will be carried out using modern equipment. The same applies to devices for environment protection. Risks during the operation of facilities will be reduced.

The company presented another project to Tatarstan President Rustam Minnikhanov in September. The modernisation of the ethylene complex has increased the efficiency of its operation by increasing the production of ethylene and increasing the quantitative indicators of steam generated.

“The project is energy efficient and has high selectivity. And the ethylene output with its implementation has increased significantly. At the same time, more energy is generated: we receive by 40 tonnes per hour more of the medium pressure steam that is consumed by our production facilities. Due to this, we have achieved some savings. For example, last year the savings amounted to about 200 million rubles: 150 million — due to saving steam, the rest — due to reducing electricity consumption," said Farid Minigulov, the director general of Kazanorgsintez.

All this is against the background of a full-blown crisis in the market of large-capacity polymers, which is mentioned in the reports of the National Research University at the Higher School of Economics.

Chemical industry and the effects of the pandemic

In 2020, according to a study by the HSE, the decline in the global chemical industry accelerated from month to month. In March, China's chemical output sank by 10,3% compared to last year, and in the US and Europe — by 2%. In early spring, global capacity utilization dropped to almost 80%. Such anti-record was recorded only in April 2009. The pandemic took its toll on the production of most chemical products, but part of the industry felt quite comfortable. This mainly applies to manufacturers of medical products.

“We see a 'pandemic' contraction in demand in the markets of polymers used in the production of goods, the demand for which has declined significantly due to the pandemic. For example, a decrease in demand for cars and related products has led to a decrease in demand for synthetic rubbers and other related polymers," said Alexander Shurakov, the director of the corporate ratings group at NKR Agency.

Due to the critical decline in demand, some companies were forced to shut down their factories. Kazanorgsintez has managed to avoid such development of events. The largest domestic producer of ethylene polymers and copolymers managed to double the production of polyethylene in the last half of the year. The company was also included in the ratings of the largest companies compiled by RAEX-600 and Forbes.

In general, Russian manufacturers faced the same challenges as their Western counterparts. The pandemic reached Russia later, so in the first quarter of 2020, the production of chemical products increased by 6,7% compared to the same period in 2019, and by 9,6% in March compared to February. Nevertheless, since April, the market has been falling.

Based on a study by the Higher School of Economics, the decline in demand for polymers is associated with the shutdown of construction projects, a difficult situation in the automotive industry, and a drop in sales of consumer goods. According to Rosstat, the production of plastic products in April decreased by 10% compared to March, components for motor vehicles — by 54%, refrigerators — by 72%, washing machines — by 75%. The PVC and ABS plastic markets were hit hard, and the situation worsened in other segments in April. However, according to experts, now the situation is improving.

“In the Russian market in the second half of 2020, we are seeing a recovery in prices for polymers — by the end of October, the price index for basic thermoplastics (calculated by plastinfo.ru) increased by more than 23% compared to June. But it should be borne in mind that more than three quarters of the price increase is due to the depreciation of the ruble," said Vasily Tanurkov, the director of corporate ratings at ACRA.

According to Alexander Shurakov, in June-October 2020, prices for LDPE and HDPE produced in Russia in US dollars increased by 37% and 17%, respectively.

But what's next? Market outlook from experts

The recovery of the petrochemical segment of the industry is still to come, experts forecasted. Companies have to cope with lower product prices, demand, revenue, and operating profit. Despite this, according to the results of the first half of the year, Kazanorgsintez received a positive operational result, experts noted.

“Kazanorgsintez is expected to go through this difficult period with good results because it has virtually no debt. Judging by the report for the first half of the year, which in any case was more difficult than the second one, Kazanorgsintez managed to go through the period without loss. The second half of the year is expected to be more successful," said Aleksey Kalachev, analyst at FINAM Group.

In the absence of strict restrictive measures during the second wave of the pandemic, the petrochemical industry is expected to finish this year better than many other industries, the analyst believes. The polymer market was lucky, Vasily Tanurkov also believes, as it turned out to be one of the least affected by the pandemic. A large share of polymers is associated with the production of consumer goods, which virtually guarantees demand for them even during periods of economic downturn. According to industry agencies, global demand for polyethylene in 2020 has decreased by only 1%, which in the current conditions can be assessed as a manifestation of stability.

“By the end of the year, taking into account the renewed lockdowns in Europe, we can expect a slowdown in the recovery of demand in the global market. At the same time, we can expect a slightly more stable demand in the domestic market, since so far Russia is not expected to renew strict quarantine measures, following the example of April-May. Low costs of Russian producers allow them to work with a positive EBITDA margin even in the current conditions, a negative net profit is possible only if we are overloaded with debt, especially foreign currency one," said Vasily Tanurkov, the director of corporate ratings at ACRA.